Question

Action Real Estate received a check for $18k on Jul 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent was credit for the full $18k. Financial statements will be prepared on Jul 31. Action Real Estate should make the following adjusting entry on Jul 31

Answer 1

Step-by-step explanation:

Since in the given question, the action real estate has received a check of $18k on July 1 which represents a 6 month advance payment. That means, we have to calculate for full year payment instead of 6 month.

So,

For a year = ( Amount × 12 months ) ÷ 6 months

= $18 k × 12 ÷ 6

= $36 k

Now, we have to find for 1 month because the adjusting entry was made on July 31 and the check is received on July 1.

So ,

1 month = Yearly Amount ÷ Total months in a year

= $36 k ÷ 12 months

=$3 k

Hence, the adjusting entry would be :

Unearned Rent A/c Dr $3 k

To Rental revenue $3 k

(Being adjusted entry recorded)